Copyright © 2021 Albuquerque Journal
Connecticut-based energy giant Avangrid, which wants to purchase PNM Resources for $4.3 billion, has faced multiple actions by regulators against utilities it owns in three Northeastern states for poor customer service and failure to adequately protect its electric grids during storms.
The company addressed those issues in a nearly 2,600-page document it filed May 18 with the state Public Regulation Commission, after PRC hearing examiner Ashley Schannauer ordered the company to explain regulatory action against its subsidiaries as part of the PRC review of the proposed merger with PNM Resources.
If the deal is approved by the commission, Avangrid would acquire PNMR and its two utility subsidiaries – Public Service Company of New Mexico and Texas New Mexico Power – in an all-cash transaction.
Avangrid executives discussed the issues faced by its utilities in Maine, Connecticut and New York in a sit-down meeting with the Journal on Thursday.
Avangrid CEO Dennis Arriola said that in general, the regulatory actions in question are part of a normal process in Northeastern states where public officials routinely scrutinize utility operations to ensure company management is adequate in satisfying customer service needs, and in maintaining grid reliability in all situations, particularly during extreme weather events. There have been issues, including penalties imposed on Avangrid utilities, Arriola said. But the company’s overall performance is good, and Avangrid has learned valuable lessons from its Northeastern operations that it will apply in New Mexico, he said.
“We have a good track record,” Arriola told the Journal. “We want to be a long-term investor here. We care about technology and renewable development, and everywhere we operate we’ve been very engaged with local communities and our customers.”
But some parties intervening in the case at the PRC say Avangrid is downplaying the seriousness of its service failures in the Northeast and the regulatory scrutiny imposed there on its utilities. Those parties filed responses last week to Avangrid’s explanations, with some concluding that the merger with PNMR is not in the public’s best interest, and others asking that PRC approval for the merger be conditioned on extra regulatory measures to ensure that Avangrid’s missteps in other states are not repeated in New Mexico.
Those issues will be discussed in open public hearings Aug. 11-20, which hearing examiner Schannauer announced Friday morning in a “status conference” with all parties in the case. The hearings, to be preceded by a one-day open public comment event on Aug. 9, will focus on a settlement agreement that Avangrid and PNMR have signed with 13 parties that agreed to support the merger in exchange for a series of commitments by Avangrid. That includes $273 million in customer benefits – including a three-year, $50 million collective discount on ratepayers’ monthly bills – plus economic development investments in the state.
Another eight parties, however, either oppose the settlement or have abstained from endorsing it, making it a “contested settlement” that will be reviewed by all sides in the August hearings.
After the hearings, Schannauer will prepare a “recommended decision” for the PRC’s five commissioners, who must then decide whether to approve, reject or modify the conditions of the merger.
Half of Northeast companies eyed
The northeastern regulatory actions under scrutiny involve four of the eight electric and gas companies Avangrid currently operates, including Central Maine Power (CMP), United Illuminating Co. in Connecticut, and two New York utilities – New York State Electric & Gas and Rochester Gas & Electric. Taken together, regulators in the three states have levied a total of about $26 million in a combination of fines, forced profit reductions and other costs imposed on the four utilities.
The penalties in Connecticut and New York all involve lack of sufficient preparation and inadequate responses to storms.
• A $2.14 million fine and a $1.3 million reduction in profit allowances, plus an independent management audit of UIL that Connecticut’s Public Utilities Authority imposed on May 6 for UIL’s response to Hurricane Isaias last summer.
• A joint $10.5 million fine by New York’s Public Service Commission on Avangrid’s two utilities in that state for inadequate management of two storms in 2018, plus a $1.5 million fine against NYSEG for its preparation during Hurricane Isaias last year.
• In Maine, the state’s Public Utilities Commission ordered a $9.9 million reduction in profit allowances for CMP because of extensive billing and customer service problems after CMP’s installation of a new billing software platform in late 2017. The commission also ordered a management audit in response to the billing debacle at CMP’s expense totaling $580,000.
And, in a separate case, the Maine commission fined CMP $500,000 – the maximum allowed under state law – for delivering customer disconnection notices last winter in violation of the commission’s consumer protection rules.
Avangrid executives say many of the issues raised about its Northeastern operations are not uncommon for utilities there, reflecting regulatory procedures in those states that are different than in New Mexico, as well as extreme weather challenges in the Northeast that are not seen in New Mexico’s hot, dry environment.
“The Northeast is notorious for storms,” Avangrid Deputy CEO Robert Kump told the Journal. “It’s bad in both summer and winter. It’s a constant battle on the part of utilities to keep the lights on, and I believe we’ve done a good job.”
Other Northeastern utilities experienced more severe service interruptions than Avangrid during the storms in Connecticut and New York, Kump said. And regulators in those states imposed much higher fines on those companies than they did on Avangrid.
After Hurricane Isaias, for example, Eversource Energy in Connecticut received a $30 million penalty. And in New York, regulators fined Con Edison $100 million, Orange and Rockland Utilities $19 million, and Central Hudson Gas & Electric Corp. $16 million, according to Avangrid.
As for management audits imposed by some of the Northeastern states, that’s a standard, commonplace procedure used by regulators in that region – but not in New Mexico – making it seem like a bigger issue to people here. And the audits often lead to recommendations that the utility benefits from, Kump said.
“In New York, management audits are required every five years, and in Connecticut, every six years,” Kump said. “These are routine audits that occur … to periodically test how a utility’s management is doing.”
Likewise, storm-related fines and reduction in profits imposed by Northeastern regulators are fairly standard, Kump said. Commissions analyze and assess utility performance after storms occur and later decide the amount of cost recovery the company is entitled to.
“We get full storm recovery at first and then regulators assess a penalty,” Kump said.
PNMR Chairman, President and CEO Pat Vincent-Collawn said the storm-related penalties are the equivalent of “disallowances” in New Mexico, whereby a local utility may incur expenses that the PRC later considers imprudent and then disallows recovery from ratepayers.
“Fines (in the Northeast) are equivalent to disallowances here,” Vincent-Collawn told the Journal. “… To some extent, the ‘fines’ have been mischaracterized.”
Regarding billing problems in Maine, Avangrid executives said CMP has overhauled its management of customer service there and corrected problems experienced when the new software platform came online.
Those opposing Avangrid deal
Avangrid’s explanations, however, elicited adverse reactions from other parties in the PRC merger case who oppose the settlement agreement to be reviewed in the August hearings.
Those parties said Avangrid has shown a “lack of candor” that undermines its credibility because it didn’t reveal the scope of problems faced by its Northeastern utilities before the PRC hearing examiner ordered it to do so.
“Failure to disclose this information impugns their witnesses’ credibility and forthrightness of all discovery responses and testimony,” Bernalillo County said in a joint response filing to the PRC with the Albuquerque Bernalillo County Water Utility Authority.
And now, rather than owning up to its failures, Avangrid is attempting to diminish the significance of regulatory actions against its Northeastern utilities, said the New Mexico Affordable Reliable Energy Alliance, which represents large industrial and institutional electric consumers.
Avangrid’s explanations – such as saying that other utilities received larger fines during Northeastern storms and that penalties and management audits imposed on Avangrid utilities are routine and commonplace – “show a lack of accountability,” foreshadowing problems for New Mexico, AREA wrote in its response filing.
“It is difficult to understand how (Avangrid and PNMR) believe they can show that PNM’s quality of service will not be diminished under Avangrid ownership when they have withheld critical information regarding serious quality of service failures by Avangrid-owned utilities in other jurisdictions and are still not willing to admit the importance of these failures to the issues in this case,” AREA said.
The PRC’s utility division staff said that in the case of CMP in Maine, the forced profit reduction for billing problems represented the largest such penalty ever imposed by that state’s regulatory authority.
The Maine commission “has basically made it clear that CMP’s violations could not be worse,” staff said.
As a result, opposing parties say that if the PRC approves the merger, it should impose strict customer protections on Avangrid, such as service standards with automatic penalties and regular management audits similar to what Northeastern regulators have ordered.
What supporters want
Still, parties supporting the settlement agreement with Avangrid and PNMR said the settlement itself includes stipulations that will help ensure grid reliability and customer service standards, such as reliability reporting requirements and a new PRC rule-making process to review reliability standards.
In fact, the state Attorney General’s Office said New Mexico will benefit from Avangrid’s experience navigating Northeastern storms.
The storms “are another benefit of the merger, bringing added experience and knowledge of emergency preparedness to PNM, which the company is lacking,” the Attorney General’s Office said in a filing with the PRC.
In addition, the increasing frequency of extreme weather events like the ones experienced in the Northeast make the merger even more critical for New Mexico, because Avangrid brings financial might and extensive know-how in building renewable generation to help stem climate change, said the Coalition for Clean Affordable Energy, which filed a joint response together with Western Resource Advocates, San Juan Citizens Alliance and three Navajo community and environmental organizations.
And in any case, the issues of customer service and reliability will be reviewed during the August hearings.
“Respondents continue to support approval of the merger,” the groups said. “Nevertheless, the issues discussed … involving reliability and customer service are of preeminent concern and are rightfully being considered by the commission.”
The hearing examiner is asking the right questions about Avangrid’s performance and experience in the Northeast, Western Resource Advocates Senior Policy Analyst Pat O’Connell told the Journal.
“The point of the hearings is to address these issues and ensure that the (settlement agreement) contains sufficient commitments to reliability, customer service and other concerns,” O’Connell said. “I believe the PRC has the tools to address those things as they come up.”